The McAlvany Intelligence Advisor, edited by Donald S. McAlvany, is a monthly analysis of global economic, monetary and geo-political trends which impact the gold and precious metals markets and is explicitly Christian, and free-market in its perspective.

STILL PARTYING ON THE DECK OF THE TITANIC: PERSPECTIVE ON THE NEW MILLENNIUM

January 2000 Special Issue

I. LIVING IN THE DAY OF THE LIE; THE REAL STATUS OF THE Y2K FAILURES

II. APPROACHING CRISES WHICH DWARF Y2K

A. THE RISE OF THE HARD-LINERS IN RUSSIA
B. CHINA PREPARING FOR WAR
C. TERRORIST ATTACKS ON AMERICA
D. THE EXPLODING FINANCIAL BUBBLE - PRELUDE TO HYPERINFLATION?

III. YOUR PREPARATIONS WERE FOR MORE THAN Y2K

(NOTE: This is a special issue of The McAlvany Intelligence Advisor, which is not a part of the regular monthly newsletter. Feel free to copy and distribute it, to place it on your website, etc.)

"Always mistrust the obvious."

"Pride goeth before destruction, and a haughty spirit before a fall."Proverbs 16:18

INTRODUCTION

Y2K has come and Y2K has gone (or has it)? Are you happy, sad, relieved, angry, perplexed, confused, surprised, feeling guilty or stupid because of your "unnecessary" preparations, or what? It seems that as the New Years weekend evolved and the world did not have its Y2K meltdown, that Americans who believed they understood the nature and dangers of the Y2K crisis ran a wide gamut of emotions. Many who prepared for the crisis that didn't come have been ridiculed or mocked by friends, relatives, neighbors, business associates, etc. for being so radical, extremist, or stupid as to have acquired food, water, medical reserves, generators, wood stoves, water filters, etc.

And the Y2K watchmen (North, Hyatt, Yourdon, Yardeni, Lord, Missler, John Anderson, this writer, and others) have been trashed or mocked for "being so wrong" and accused of being scam artists, charlatans, profiteers, hysterical "false prophets," etc. Some of these Y2K watchmen (those who are outspoken Christians) have been castigated most severely by fellow Christians who believe that Christendom has been severely embarrassed or compromised by their warnings of Y2K problems. Their character, motives, and intentions have been severely criticized, maligned or mocked in what seems to this writer a strange reaction to a major crisis which we are all thankful was averted.

[ED. NOTE: For those who still think that the whole Y2K crisis was a hoax or a fraud, AP reported in a story from CNN/FN (1/4/00) that one state took three computers which it did not fix, left them running through midnight 12/31/99 and, according to John Koskinen: "All three of the systems failed following the Y2K rollover and could not be used. The systems simply stopped and became unusable." Maybe fixing them was a good idea after all.]

1. WHAT REALLY HAPPENED A PERSPECTIVE ON Y2K

Y2K was (and is) a real problem worldwide it was not just a fabrication of governments; software remediation companies; food, gold, water filter or other preparedness companies; or fanatical gloom and doomers eagerly anticipating the end of the world. Governments and businesses around the world (according to Y2K Czar John Koskinen) spent an estimated $500 billion on Y2K remediation (which is a lot to spend on a non-problem).

Hundreds of U.S. embassy personnel worldwide were brought home because of fear of Y2K problems in countries like Russia. Governments, military forces, law enforcement agencies, emergency management groups and corporate IT personnel were placed on the highest state of mobilization or alert over the New Years weekend in U.S. or world history it was truly a working weekend and we were truly a hairsbreadth from a national or global state of emergency. For the first time in U.S. history, all 10 FEMA Regional Centers were activated and all 50 state emergency management organizations were fully staffed and operational. They were stunned that we had no infrastructure problems.

Most people (including the media) were focused on the power grid and telecommunications systems in the U.S. and across the globe. Severe major early problems in these areas could have crippled infrastructures and brought down everything else in a giant avalanche of failures. Thankfully, through extensive remediation efforts; cutting back on power in some plants while bringing other reserve systems on stream; and Third World countries including Russia, China, India, etc. going to manual operations severe failures were averted.

Virtually everyone including U.S. and foreign government experts, Y2K Czar John Koskinen, corporate IT personnel and Y2K bears, etc. were pleasantly surprised that major failures did not occur in the domestic or global power grid or telecommunications. However, other failures (to be discussed below) have occurred and will continue to occur throughout the winter, spring and summer. There was also great surprise that the embedded chip problems seemed in early January to be minimal, with many observers concluding that this aspect of the Y2K crisis was vastly overestimated.

It also appears that the success of the domestic and international remediation efforts were underestimated by virtually everyone, including the Y2K bears (including this writer). As James Woodward, a vice president with Cap Gemini (a large Y2K remediation firm) said in the Washington Post (1/1/2000): "There is a huge sense of relief. There was a gargantuan effort, involving large amounts of people and money to get everything ready. It now clearly seems like it was well worth it."

2. BUT IS Y2K REALLY OVER?

No, it is not over till it's over! We are only about half way through the first quarter of the football game and though electric power and telecommunications have not seen widespread failures, it is far too early to declare total victory as the media has been doing. Although embedded systems have not been as problematic as anticipated, there are many failures, glitches, or stoppages occurring around the world (which are not being reported by the media) and these are escalating as more systems come back on stream. It should be noted that most business and government systems were disconnected over the New Years weekend they could not fail because they were not plugged in.

3. COMPOUNDING/CUMULATIVE PROBLEMS

Y2K glitches, or failures, corrupted data, or computer shutdowns are likely to escalate throughout the winter, spring, and summer as we have seen with the air traffic control system on the East Coast in the first week of January. Will these problems be mere nuisances or will they compound into serious problems which will damage the U.S. (or global) economy and financial system. This writer has long believed (and continues to do so) that the greatest negative impact from Y2K is likely to be economic to be felt increasingly over the next three to six to nine months. As the Gartner Group has pointed out, only 10% of all Y2K failures will have occurred in early January with over half of such failures occurring later in the year.

4. ARE GOVERNMENTS AND THE MEDIA COVERING UP FAILURES?

It should be pointed out that there is a massive domestic and global coverup by governments, the media and businesses (including banks) of Y2K-related computer glitches or failures. Governments all over the world have a mutual understanding that they will report no failures at least until they are fixed, and maybe not even then. There has also been a global media blackout of reporting on failures. The standard, orchestrated party-line from governments and the media regarding any glitches or failures is: "It's not Y2K-related." When you hear that phrase, you can safely assume that it is probably Y2K related.

When problems do occur, no one will talk about them not government, banks or businesses. They will keep them very quiet, hoping that no one will notice until they are fixed. In most instances, we'll only know about the breakdowns if they are too large to coverup like the East Coast air traffic control problems or the Norwegian train wreck - and even then, we will quickly hear that familiar refrain "It's not Y2K-related." It is worth repeating - you won't hear about the glitches if they are coverable.

So, the bottom line is that, aside from a non-meltdown in the power grid or telecommunications, we really don't know how bad Y2K is or will be over the next six to 12 months; the truth about Y2K failures is being covered up by governments, the media, and businesses; and the implications of cumulative failures and compounding of bad data are still unknown.

5. THE ROLE OF THE Y2K ALARMISTS

In spite of the fact that longtime Y2K skeptics are now gloating that "they were right Y2K never was really a problem," and mocking the warnings and motives of the Y2K awareness movement (the Norths Misslers, Lords, Yourdons, Yardenis, Hyatts, and others), the fact remains that these warnings over the past two to three years (Gary North began over three years ago) woke up millions of people and convinced hundreds of thousands of people in governments, businesses, banks, and the financial world that Y2K was truly a huge, potentially devastating problem, and that serious remediation efforts needed to be launched.

A half a trillion dollars was subsequently spent globally on the Y2K fix. John Koskinen and other government and business leaders have acknowledged since January 1 that Y2K was potentially huge and that the half trillion dollar global remediation effort (which did make a positive difference) should be credited in large part to the early, frequent, detailed, vocal warnings of these Y2K alarmists.

Instead of being treated as goats, and mocked because there was not a global Y2K meltdown, these watchmen should be congratulated for the role they played in precipitating and catalyzing a monumental global effort to minimize the effects of the millennium bug and in getting millions of individuals and families better prepared for some future disaster(s).

[ED. NOTE: This writer and a number of his colleagues for whom he has great respect believe that the people who seriously prepared for Y2K may have actually and unknowingly been preparing for a much larger crisis i.e., terrorist, financial, nuclear, martial law, etc. These people, who number in the hundreds of thousands, are today more prepared, more self-sufficient, more independent and better positioned to survive a serious crisis which this writer believes will eventuate in the not-too-distant future, than anytime in their lives. In this writer's strong opinion, that is the biggest plus of all from Y2K.]

I. LIVING IN THE DAY OF THE LIE: THE REAL STATUS OF Y2K FAILURES

MIA has written a lot in recent months regarding how we live in the day of the lie in a time of great deception. This is currently manifesting itself in the false (or non) reporting of Y2K failures or glitches which are occurring in the U.S. and around the world. There is almost complete coordination between governments and the media in the U.S. and globally (as there was throughout 1999) regarding non-reporting of failures.

Virtually all the nations of the world (except Canada) signed an agreement for such cooperation. Furthermore, if national security considerations can be cited in times of national emergency, the government can use the media as a disinformation outlet which it appears to be doing at present.

[ED. NOTE: This writer has sources within the defense establishment who believe that the government is presently conducting a massive disinformation campaign and lying regarding Y2K on a scale unprecedented in U.S. history and especially about Y2K problems within the U.S. military and weapons systems, where concealment of problems is relatively easy to facilitate.]

Y2K may not meltdown the U.S. or global infrastructure, but it is far from over in spite of the near-total global blackout of information on failures and the oft repeated caveat "but it's not Y2K-related." Like herpes, we are constantly being told, "but it's only a cold sore." The reality is that there have been many thousands of Y2K glitches or failures around the world since 12/31/99, including some very serious problems within the U.S. military.

There have been minor local telephone and power glitches around the country which we have had personally reported to us by subscribers. Likewise for business and manufacturing problems. The U.S. Eastern seaboard has been plagued with air traffic control problems (to be described below) for several days. Norway just experienced its most serious ever head-on train wreck (two trains collided due to faulty switching) with a large number of fatalities. Two months ago the Norwegian National Rail Administration warned that lives could be lost at the turn of the millennium due to computer problems.

The San Diego Police Department is reported to have just erased all of its criminal records. MCI has had problems. Through 1/5/00, Gartner Group reported 400 private, confidential Y2K problems in businesses it consults.

There have been eight U.S. nuclear power plants which have had problems (four critical), three in Japan and several in Spain. On December 31, two U.S. nuclear power plants were shut down and a third scaled back significantly. Y2K problems have occurred in at least eight other utilities (but were quickly fixed) and power brownouts and brief outages were reported in Texas, Kentucky, California and New Mexico. A stuck valve at a chemical plant in Florida resulted in a large chemical spill and one death. Vehicle registration in New Mexico has had serious problems.

NORAD has suffered serious Y2K problems (not reported by the media), bringing a major portion of its system down. NORAD has had sustained, widespread critical failures in such systems as their early warning (missile launch detection) system, missile targeting systems, space based assets (intelligence satellites such as the Keyhole-11 series of satellites), and others.

A significant number of early warning satellites have failed in various sub-systems of the satellites. One such satellite costs $600 million. The Navy has experienced many failures ranging from systems in its aircraft carriers to missile submarines (boomers such as the Ohio Class, carrying the Trident I and II missiles). No major media sources have reported these failures. Since August 23, 1999, the military has had ongoing problems with their GPS (the constellation of 24 Navstar satellites which make up the GPS network).

Informed sources have related to MIA that there have been substantial enough problems in oil deliveries that in order to keep oil deliveries and prices stable and hide present shortages, the U.S. is presently dipping into its strategic oil reserves (which have a five or six month supply). There have been failures in U.S. offshore drilling rigs.

Business systems around the country, which were fixed too fast and inadequately tested (or not tested at all) are beginning to experience increasing problems and that is likely to continue to accelerate throughout the first and second quarters although most will never be publicly reported. A growing number of fixes are beginning to experience problems (i.e., fixes usually introduce 10-15% new bugs or errors which can cause breakdowns). TechWeb/CMP Media has indicated that one in four (25%) of the IT professionals they surveyed since 1/1/2000 indicated that their organizations have experienced Y2K problems since the New Year.

Jim Lord thinks that as many business or government systems go through their weekly, bi-weekly, monthly or quarterly tax and payroll cycles, that they will begin to fail. As computer consultant Cory Hamaski recently wrote: "It's the enterprise systems that will fail over months, corrupt databases, kill organizations, put people out of work. I'm worried about the big old systems. Some big systems run daily but most are weekly, monthly, quarterly, or annual jobs."

Problems have shown up with the Liberty Cash Card (i.e., cash replacement cards) with 112,000 Liberty Cash Cards in use from California to Florida. Thousands of these cards are being rejected due to the 2000 date (according to the Denver Post 1/7/00). Federal Express and several large banks in Phoenix are reported to have experienced problems. Denmark's Unidanmark says it has found Y2K problems in its United Payment System.

On January 5, information leaked out that there was a major failure in point of sale credit card transactions. It happened at 40,000 terminals 150,000 times. The problem was multiple charges for the same transaction. The computer bills twice on the day of the transactions and once each day thereafter. The failure is happening in one of the largest credit card approval companies. The government and the Fed refuse to acknowledge the problem part of the ongoing coverup of emerging Y2K problems.

[ED. NOTE: Pay close attention to your computerized credit card bills in coming months.]

On 1/6/00, The Oregonian reported: "A Y2K problem at a small Chicago bank has snagged electronic Medicare payments to hospitals and other health care providers in at least eight states, including Oregon, Washington and California. The glitch, which occurred this week at Highland Community Bank, is causing payment delays of up to a day and leaving some Oregon hospitals temporarily unable to access their newly deposited funds."

AIR TRAFFIC CONTROL FAILURES

Twice (on two separate days during the first week of January) computer problems developed with the East Coast air traffic control centers in Boston and Dulles, delaying flights up and down the Eastern seaboard for more than three hours and resulting (on 1/6/00) in one-third of flights being canceled. The problems caused departure delays at Boston's Logan Airport, the three New York area airports, in New Jersey, Philadelphia, the three Washington area airports and Raleigh-Durham in North Carolina. As in most of the glitches, problems, or failures described above, the FAA was quick to deny that the ATC problems were Y2K-related.

As Fox News (1/6/2000) reported: "The towers at National (Airport) and Dulles (Airport) requested all departures halt because of `FAA Washington Center computer problems,' Tom Sullivan of the Metropolitan Washington Airports Authority said. Jennifer Cassidy of the Maryland Aviation Administration said a couple of flights from BWI had to take off `manually.'"

The problems were caused by the failure of the main computer at the FAA's Washington Center at Leesburg, VA, one of two dozen such sights around the U.S. The Washington Center coordinates flights from Richmond, VA north to New York and west to West Virginia an area of 160,000 square miles of airspace.

On 1/3/2000, the Boston Center (the ATC center at Nashua, NH also controlling 160,000 square miles of airspace) went down. In both instances there were 50 to 100 planes in the air in the respective areas at the time. Air traffic in Chicago, New York, JFK and Newark was delayed from one to three hours by the Boston Center failures.

On Monday afternoon (1/3/2000) the Chicago radar display used to direct traffic into O'Hare went down for two minutes with five aircraft in the air and five on the ground at that time that were affected. MCI, which runs the system that failed, blamed the outages on a power surge at an O'Hare generator.

In addition to the ATC problems, the FAA is being severely criticized for allowing serious security breaches in its Y2K remediation efforts. They did not get security clearances on many of the people who repaired their systems leaving open the possibility of trap doors or other vulnerabilities to viral sabotage of the U.S. air traffic control system.

On 1/1/2000, Low-Level Windsheer Alert (LLWAS) systems failed at Tampa, Denver, Atlanta, Orlando, Chicago O'Hare and St. Louis during the rollover. They were rebooted and brought back up.

CONCLUSION

The above glitches (of course "none of them Y2K-related"), while not threatening to the infrastructure, are an early indication of more glitches or failures to come. And for every one we hear about (in spite of the press blackout) there are probably 50 or 100 that we will never hear about. What will be their cumulative effect over the next 6 to 12 months? Only time will tell, but it appears to this writer that in spite of government/media pronouncements to the contrary, Y2K is not yet over.

The big winner in Y2K to date has been the government and the Clinton Administration. Bill Clinton and John Koskinen are the "heroes" who led us through the crisis. And the machinery (legal, military, and law enforcement) was completely set up and tested for a National State of Emergency and Martial Law. FEMA was mobilized in all 10 regional centers; all 50 state emergency organizations were mobilized; the military, National Guard and law enforcement were all on standby and at their highest state of readiness or alert in U.S. history; and all Bill Clinton had to do was give the order, and America would have been an instant and total dictatorship.

During this countdown to Y2K, the government also built 40 or more large, underground command bunkers at a total cost of almost $5 billion, stuffed them with food, medical supplies and other forms of survival gear (while telling individual Americans not to prepare); and on December 31, a number of federal and state officials around the country descended into these bunkers. They were clearly not built for Y2K. So what were they built for? Terrorist attacks nuclear, chemical or biological? An all-out nuclear attack on America? The question deserves an answer.

[ED. NOTE: During the countdown to Y2K, especially in the last month or so of '99, the government and media warned continually about terrorist attacks and cyber-attacks (i.e., 200,000 viruses were to be unleashed). They didn't happen. Was this disinformation to distract attention from Y2K, or to blame its consequences on terrorists if it turned out to be severe? Or do they really expect large and deadly terrorist attacks on America? These questions deserve answers.]

If we have a series of terrorist attacks in 2000 or beyond, the government will declare Martial Law and a State of National Emergency, and suspend the U.S. Constitution. They have just conducted history's largest ever peacetime exercise for same. Remember the military exercises in Jacksonville, FL; Anniston, AL; Port Aransas, TX; Monterrey, CA; and a dozen other cities over the past year or so and ponder the government response to the WTO/Seattle demonstrators. They were practicing for something! What was it? Were they testing the responses of the public, local officials, local law enforcement and the media as well as practicing their urban military techniques?

Under such a State of Emergency, it is likely that firearms would be forcibly seized, politically incorrect dissidents jailed, human rights suspended, and the population tightly controlled. Is this why the government and its media partners lobbied so hard against personal preparations during Y2K (i.e., food, water, generators, water filters, firearms, etc.)? Prepared self-sufficient people are far more independent and difficult to control.

II. APPROACHING CRISES WHICH DWARF Y2K

The good news - the lack of sudden impact from Y2K in early January was frankly disappointing to this writer in two respects: I didn't get to test my backup energy systems under "real world" conditions. And, the American people, who have grown fat, dumb, complacent and blinded by massive prosperity and affluence, did not get a wake-up call that would bring them back to their senses.

This writer had hoped that Y2K would be like a board, smacked upside the head of a mule to get its attention to bring the public back to the basics, to common sense, to traditional values, and even to the God of the Bible. It did not happen. Americans' arrogance, pride, affluence, prosperity and greed is now greater than ever. So is their blindness to the dangers they face.

But there are even greater crises than Y2K which are waiting in the wings, a few of which will be discussed briefly below and in greater depth in the months to come. The looming crises include: the rise in Russia of Communist hard-liners who hate America; Red China's war preparations; the coming terrorist attacks on America; the exploding U.S. financial bubble prelude to hyperinflation and collapse; a State of National Emergency and Martial Law precipitated during a terrorist or financial crisis; gun control; and persecution of Christians and traditionalists in the midst of one or more of the above crises.

A. THE RISE OF THE HARD-LINERS IN RUSSIA

Russia has just completed its sixth period of glasnost/perestroika in 80 years (i.e, #1 in the 1920s under Lenin; #2 in the 1930s under Stalin; #3 in the 1940s, again under Stalin; #4 in the 1950s and early '60s under Kruschev; #5 in the 1970s under Breshnev; and #6 in the 1980s and '90s under Gorbachev and Yeltsin). Each of these periods was a time of strategic deception in which the Russians pretended to be renouncing Communism with its brutality, terror, imperialist expansion, and hatred of the West (and particularly the U.S.), and in which they pretended to embrace western-style capitalism, free markets, democracy, etc.

Each of these periods of feigned "openness, self-examination, and change" was designed to get the Western powers (and particularly America) to send to Russia massive financial, agricultural, and high technology aid. Glasnost/perestroika #'s 4, 5, and 6 were designed to get the West (and American in particular) to also massively disarm while Russia (or the "former" Soviet Union) would quietly maintain or build its military strength.

1. GLASNOST/PERESTROIKA #6

- actually started in 1985 when Mikhail Gorbachev, a hard core Marxist-Leninist and former brutal, high ranking KGB operative, was brought to power, and was portrayed to the West as a democrat, a reformer, and the man who would dismantle Communism in Russia and move the former Soviet Union into Western-style capitalism and democracy.

The collapse of Communism, the destruction of the Iron Curtain and the Berlin Wall, and the disintegration of the Communist Party of the Soviet Union (CPSU) were all a sham, a scam, a giant highly orchestrated geo-political charade or strategic deception to convince America and the West that Communism was dead, the Cold War was over, that peace had arrived, and that America and the West (with no other major superpower enemy) could disarm and send to Russia massive high tech and financial aid.

To make this giant strategic deception credible, a pseudo-coup was staged in Russia in August, 1991, which brought another hard core Marxist/Leninist and former KGB official, Boris Yeltsin, to power - posing as a democrat, free market reformer, lover of America and the West, etc. Massive U.S./Western high-tech aid to Russia followed and the U.S. cut its military strength in the 1990s (under Bush and Clinton) by over 50% with its military now at its weakest level since 1938 and its military morale under Bill Clinton at its lowest ebb in U.S. history.

2. THE COMMUNISTS WENT UNDERGROUND

Meanwhile, the Communist Party of the Soviet Union (CPSU) went underground, reorganized, and has ruled Russia from behind the scenes for the past decade, with Boris Yeltsin and his reformers ruling as figureheads. The KGB has been reorganized at least six times since 1985, is today stronger than it was during the Cold War, and has infiltrated more agents into America and the West (and into their governments) than even at the height of the Cold War.

It has agents of influence in the U.S. government (from the White House down), in the British, French, and virtually all Western governments. "Former" KGB agents dominate the Russian mafia and business as well.

3. THE SOVIET MILITARY WAS NEVER DISMANTLED

Communists (now called "former" Communists) still rule in most of the former Soviet bloc satellite nations and republics. The Russian military has been streamlined while its arms (bombers, fighters, and other warplanes; ICBMs, SLBMs, nuclear attack and missile submarines; tactical nuclear missiles; tanks and other conventional weapons systems) have been dramatically upgraded over the past decade. While America has shut down or downsized about 90% of its defense industry, most of Russia's defense industry (with thousands of defense plants) remains intact.

Russia has the world's largest arms industry, and despite its well-crafted (by KGB disinformation) image as a poverty-stricken nation run by ham-handed buffoons, Russia is the world's largest arms supplier and still maintains the world's largest military machine with over 25,000 nuclear warheads; 12,000 ICBMs; the world's largest fleet of nuclear attack and missile submarines; a three-fourths deployed anti-ballistic missile system to shield itself against an American second strike nuclear retaliation; and more.

As former Reagan Defense Secretary Casper Weinberger wrote in his book The Next War, Russia could destroy America with a surprise nuclear attack in one afternoon. And the brutality of the Russian military is again being demonstrated today in the brutal rape and destruction of the breakaway republic, Chechnya.

4. THE FAILED "EXPERIMENT" WITH REFORM, DEMOCRACY, AND FREE ENTERPRISE

Russia has portrayed itself over the past decade as the poverty stricken, chaotic, former superpower - trying to reform itself and evolve into a free market democracy, just like America. It has obtained huge amounts of Western aid and loans (largely via the IMF) and much of that has gone into the Russian military and its arms industry. The Russians have mastered Sun Tzu's strategy of: "When weak, feign strength, and when strong, feign weakness."

No doubt, the Russian people are broke, poverty stricken, angry, frustrated and are now, indeed ready to return to the "good old days" of Communism (or super nationalism) wherein Russia had stability, respect from other nations because of its military strength, and predictable authoritarian rule. Russia's pseudo-experiment with capitalism and free markets was never intended to succeed. It was intended to deceive the West into granting massive financial/high-tech aid and was designed to prepare the Russian people for a return to Communism, or at least authoritarian rule.

Most Russians now hate what they see as "imperialist America," because of its 1999 attack on Serbia and "liberation" of Kosovo. In hindsight, that ill-conceived American/NATO aggression will be seen a decade or two from now as the beginning of World War III.

5. THE NEW AXIS

The New Axis (like the Germany/Italy/Japan axis of the 1930s and '40s) hates the West and especially America; they fear that the New World Order countries (i.e., America, Western Europe, Japan, and the Asian Tigers) threaten and wish to dominate them; and they are actively and aggressively preparing for war just as Germany and Japan did in the 1930s.

The world is now being divided into two major camps (or blocs or alliances) which will ultimately face each other in World War III: The New World Order states (with their military arm NATO) and the New Axis, with the present and "former" Communist states plus radical Islam, and combined military power (which is growing rapidly) which exceeds that of the West.

6. ENTER VLADIMIR PUTIN: THE END OF GLASNOST/PERESTROIKA #6

The resignation of Russian President Boris Yeltsin on New Year's Eve represents the beginning of the end of the past 15 years of glasnost/perestroika and the resurgence of hard-line Russia. They have milked Glasnost/Perestroika #6 for about all it is worth. Vladimir Putin, a long-time KGB leader and Marxist/Leninist, and a leader in the Communist Party inner circle which has been running Russia from behind the scenes, is the new interim president.

Putin is a hard-line Communist who hates America and wants to restore Mother Russia to its former greatness. He is aware of the rapidly growing anti-American sentiment among the Russian people and will harness same in the upcoming March 26 presidential elections. It appears at this writing that the CPSU inner circle will go with Putin, but, if not, it will be someone equally dangerous to U.S. and Western interests.

It was both noteworthy and ominous that when the televised (CNN) ceremony for Yeltsin's handover of power to Putin took place 12/31/99, that Yeltsin handed the nuclear briefcase with Russia's nuclear codes and buttons to Putin right in front of the TV cameras for all the world to see. This was a well-calculated and ominous warning to the West.

IN SUMMARY, glasnost/perestroika #6 appears to be over and we appear to be entering a dangerous new period of hostility toward the West, and in particular toward the U.S. Russia's and Red China's present alliance and war preparations are very troubling.

They know that they have a window of opportunity for one more year, until Bill Clinton leaves office, and then, America's unprecedented military decline (orchestrated by Clinton and other agents of Russian or Chinese influence) may begin to reverse especially if a Republican becomes president.

Until that decline is reversed, and America deploys a real, viable anti-missile defense system (i.e., three to four years to deployment) America is very vulnerable to nuclear attack. Is that why the U.S. government just built 40 underground command bunkers at a cost of almost $5 billion?

B. CHINA PREPARING FOR WAR

Red China is preparing for war, first with Taiwan, and then, in alliance with Russia, North Korea, radical Islam, and other socialist/Communist nations, against America and the other New World Order countries. America under George Bush and Bill Clinton, via our insane trade policy with the PRC, has built Red China into an economic superpower and a rapidly emerging military superpower.

America, via Bill Clinton and other agents of Chinese influence, has transferred virtually all of our nuclear, our missile, our submarine and other sensitive military technology to the PRC and its Peoples Liberation Army. And what the Clinton team hasn't given to the Chinese, they have stolen. Much of this technology in turn has been transferred directly to Russia for use in its military/industrial complex.

Russia and China bring interesting contributions to their military alliance table. Russia has the world's largest arms industry with thousands of weapons plants and weapons subcontractors -but very little money. China has only a medium sized (but rapidly growing) arms industry but massive sums of money from their $50 billion a year trade surplus with America. Russia is therefore now beginning to produce large quantities of arms for China - which China can readily pay for with Western (mostly U.S.) sourced funds.

China can also share all of its U.S. obtained nuclear/military technology with Russia and the other New Axis partners including the Islamic members of the alliance. With the huge Russian arms industry, massive Chinese funding (which will accelerate with the PRC's entrance into the WTO), and unlimited U.S. military technology, the new Axis can build a formidable war machine which can threaten America and the West in a very short time. And time is on their side, for as their military strength continues to grow, America's and the West's continues to shrink the recent showboat-televised wars in Kuwait and Kosovo notwithstanding.

The Chinese have embarked on a major military buildup over the past year; have moved into, and established a beachhead in Panama; have thousands of intelligence agents throughout the U.S. as well as agents of influence inside the U.S. government; and are actively preparing for the conquest of long-time U.S. friend and ally, Taiwan.

The PRC currently has about 14 of its 18 ICBM nuclear missiles targeted on the West Coast of the U.S. [ED. NOTE: Remember the January '96 threat of a top Chinese official to nuke Los Angeles!]. Within a very short period, it will have hundreds of such missiles, and then thousands. Some will be built in China - some in Russia. Both countries are also helping North Korea to become a credible nuclear missile power (as well as several Islamic states).

It is very possible that in the not-too-distant future, as Cap Weinberger suggested in his book The Next War, that North Korea will invade South Korea and China invade Taiwan simultaneously (i.e., on the same day). America's military would be spread far too thin to respond in Korea, Taiwan, and perhaps even to concurrent new wars in the Balkans and Middle East, which are brewing at this writing.

On 1/6/2000 WorldNetDaily reported that China and Russia are preparing to enter into a joint venture to co-produce a deadly, new supersonic cruise missile, the Zvezda Kh-31P mod-2, designed specifically to attack U.S. Navy Aegis warships and U.S. Army Patriot radar batteries.

On 1/3/2000, ChinaOnlineNews reported in an article entitled: "China to Buy More Warplanes, Destroyers, and Subs From Russia:" "China is reportedly in negotiations to purchase more fighter aircraft, destroyers and submarines from Russia, according to the latest issue of Jane's Defense Weekly."

"Citing `diplomatic sources in Beijing,' JDW said China is seeking to buy 40 more Su-30MKK fighters, two or three upgraded Kilo-class submarines and two or three more Sovremenny-class destroyers.

"`Such assets would considerably enhance China's area denial capabilities,' JDW noted, `especially in the East China Sea where serious tensions exist with Taiwan.'"

IN SUMMARY, America and the other Western powers are building Communist China into an economic and military superpower through massive aid, trade and high-tech transfers; the PRC is in bed with Russia and cooperating in joint arms building, which will expand China's armed strength very rapidly over the next few years; China is planning to attack and conquer America's long-time ally Taiwan; the Chinese have established a beachhead in Panama from which they can expand their influence in Latin America and eventually control America's most vital maritime chokepoint the Panama Canal; and the PRC is building its capability (with Clinton Administration collaboration) for an eventual nuclear strike against the U.S. mainland.

C. TERRORIST ATTACKS ON AMERICA

"We are on the verge of a global transformation. All we need is the right major crisis and the nations will accept a New World Order." - David Rockefeller

The U.S. government believes that massive terrorist attacks could be launched against America in the not-too-distant future. They do not really believe that these attacks will come (ala Project Megiddo) from domestic, right wing, or millennialist terrorists who, incidentally, were conspicuous by their absence during the millennial turnover.

While it is politically advantageous for the political left to make such accusations against the political right, America's top intelligence and military authorities know and understand that the real terrorist threat (which includes weapons of mass destruction -nuclear, chemical, and biological - comes from foreign groups or governments.

Russia, China, North Korea, Cuba, the radical Islamic states, and the governments or groups America has bombed or attacked in recent years are all candidates for organizing terrorist attacks inside the U.S. They all have operatives in the U.S. and our intelligence agencies know that they have smuggled weapons of mass destruction into the U.S. over the past decade or so. With thousands of miles of coastline and borders with Canada and Mexico, it is not difficult to infiltrate terrorists or smuggle weapons into the U.S.

[ED. NOTE: The recent "terrorist flap" at the Canadian border near Seattle in late '99 and threats against the Seattle Space Needle don't completely pass the sniff test. This writer believes that those "terrorist flaps" were not all they appeared to be. Really serious, professional terrorists don't normally come into the U.S. at well traveled border check points or bring weapons or explosives in at those points. Those "flaps," along with the well-publicized "threats" of cyberterrorism (i.e., 200,000 New Year's viruses) appear to this writer to have been deliberate government disinformation perhaps to distract from Y2K, or to have something or someone to blame Y2K failures on if they become very large.]

Nevertheless, it appears that U.S. military and intelligence agencies seem to have a real, genuine fear of real, genuine foreign orchestrated terrorist attacks on America. This may be why the 40 or so large, underground government bunkers were built. The U.S. government knows that TWA 800 was shot down by a missile (very possibly a terrorist missile) and that the Swiss Air and Egyptian Air flights (all out of JFK, and all crashing in the Northwest Atlantic) may have been terminated by terrorists.

[ED. NOTE: They would never say this publicly for fear of triggering a panic. Kind of like, "It isn't related to Y2K." "It isn't related to terrorism," etc. etc.]

Joel Skousen recently wrote the following in his World Affairs Brief: "Terrorism represents one of the biggest threats to freedom that faces us over the next decade. It plays out in two areas of significance: (1) Violent terrorism can be seriously disruptive to the life and stability of western economies and cultures. The threat of weapons of mass destruction - nuclear and biological - being used by terrorists is real and even a single major incident could overwhelm the infrastructure's ability to deal with it. As terrorist bombers have demonstrated in Israel, no matter how tight security is, sooner or later, someone `gets through.'

"(2) Equally grave are the Draconian measures, which governments will want to employ to combat terrorism. These measures can easily become a source of terror for law-abiding citizens themselves. They invariable result in increasing encroachment on Constitutional safeguards with a corresponding decrease in civil rights.

"While Americans and citizens of other western countries may go along with these measures in the name of guaranteeing security -at least for a short while - the truth is, these measures are not likely to provide any significant increased security from terrorist acts. However, if the incidence of terrorism rises, the clamor for security at any cost will rise with a corresponding decrease in freedom."

One of this writer's greatest concerns over the next six to 12 to 18 months is that a series of terrorist attacks in America by whoever (i.e., even by leftist agent provocateurs) would lead to overnight implementation of a State of National Emergency; Martial Law; possible government seizure of firearms; censorship of the conservatives' "politically incorrect" alternate media; and even persecution of Christians and traditionalists who don't toe the government/media line of the day.

Remember how the Nazis used the Reichstag fire (the burning of the German Parliament in 1933) to seize power, shut down their opposition and virtually all civil rights, and catapult themselves into a total dictatorship. Could history repeat itself, but this time in America?

[ED. NOTE: This is the subject of this writer's new book: "Storm Warning: The Coming Persecution of Christians and Traditionalists in America." As evidence of this coming persecution, in early January it was reported that religious broadcasters and station owners are worried about new Federal Communications Commission (FCC) rules, which, they say, seek to diminish Christian-based television programs that promote a specific faith because they are not generally "educational." Worse, the decision may force many of the 125 religious stations around the country to drop all faith-based programming.]

The Clinton Administration has spent the past seven years installing massive legal (i.e., executive orders), military, and law enforcement machinery for installation of a State of Emergency and Martial Law. They have run practice exercises all over America, including most recently in Seattle and conducted the most widespread mobilization in U.S. history over the New Years holidays. All that is needed now is the right major crisis- one in which the American people (manipulated by the media) cry out "for the government to do something."

Will a series of terrorist attacks be "that right major crisis"? If America were in the midst of social and political turmoil while under a State of Emergency; greatly weakened militarily; and in a state of total confusion, would that be an opportunity for Russia, China or our other enemies to attack and neutralize the U.S.? It is worth pondering!

D. THE EXPLODING FINANCIAL BUBBLE - PRELUDE TO HYPERINFLATION?

1999 was the most prosperous year ever especially in the financial markets in U.S. history. The stock market and other financial assets set new records and enormous wealth was created literally overnight out of thin air. Is the U.S. economy really that strong? Are corporate earnings and fundamentals really that good? Do they even matter any more? Have we finally reached that "new era," that financial Nirvana whereby asset values, like Jack's beanstalk, will grow to the sky overnight and keep on growing forever?

Are hard work and 8 to 5 jobs now outdated anachronisms of the "old era" to be replaced by a "new era" of day trading, instant riches and prosperity, and overwhelming financial wealth, affluence, and prosperity? Has the Internet, unlike Ponce de Leon's elusive "fountain of youth" become our perpetual "fountain of wealth" - satisfying our every personal or financial whim or need?

This is now becoming the dream (or is it the delusion) of tens of millions of Americans - many of whom have concluded that instant, pain-free wealth from "playing the market" is better than working for a living. We have finally found (like the "perpetual motion machine") a "perpetual money machine." All the old rules have been repealed. We are in a "new era" of perpetual wealth creation.

QUESTION: What is wrong with that picture? ANSWER: It is a delusional psychology that emerges only once in many decades or even centuries at the peak of a speculative boom and blowoff. It is driven by rampant greed, a rampant something-for-nothing philosophy, and the very arrogant belief on the part of the masses that they are invincible, bulletproof, invulnerable to financial loss. It is a delusion and defies 6000 years of financial history. It always ends in a crash and financial disaster for its participants.

1. THE MOST MASSIVE MONETARY EXPANSION IN WORLD HISTORY

QUESTION: What has caused the present, largest ever-in-history financial bubble and stock market buying frenzy? ANSWER: The most massive monetary expansion, the most massive injection of financial liquidity into a financial system totaling trillions of dollars in U.S. or world history. It has been done by the Fed, the U.S. Treasury, and other monetary authorities since 1994 - but especially over the past 16 months since September, 1998. It has created the greatest speculative buying frenzy (in U.S. financial assets) since the ill-fated Tulip Mania and financial collapse in Holland in 1637. Only this mania is a hundred times larger.

In October/November '98, in the wake of the near-collapse of Long Term Capital Management, the Fed/U.S. Treasury and monetary authorities pumped over $200 billion in new liquidity into the U.S. financial system to prop up the faltering U.S. stock market. In the last 13 weeks of 1999, the Fed pumped in another $194 billion to keep the bubble market expanding and to insulate against a Y2K-induced financial collapse which the Fed desperately feared. In the last 60 days of 1999, the Fed expanded the adjusted monetary base at an unprecedented annualized rate of over 48% - the highest in U.S. history!

Much of that excess liquidity has flowed into the U.S. stock market. The public is now stampeding into stocks like at no time in history, with stocks that have no earnings or near term prospects for earnings (i.e., they are losing money) going up 10, 15, 20 or 25 times in 1999.

In November '99 alone, margin debt rose $24 billion to $206 billion - a $65 billion or 46% increase in margin debt for the year. An explosion of derivatives trading in stocks has added massive leverage to the stock market. And that does not include all the indirect borrowing that has made its way into the stock market from an increase in mortgage and other debt for the household sector as well as unprecedented stock buybacks by the corporate sector.

Underscoring the present buying panic and mania is the fact that from October 27 to December 22 (less than 60 days) the Nasdaq grew 40% - that is an incomprehensible $1.4 trillion increase in market value or new wealth. Over the past nine weeks, over $2 trillion in stock market wealth has been created.

Over the past 14 weeks, our already overleveraged financial sector increased its commercial paper borrowings another $123 billion to $1.1 trillion, while the broad money supply (M3) increased $230 billion to $6.8 trillion. We are presently seeing the greatest credit expansion in U.S. history and most of it is pouring into the stock market. Some is also beginning to pour into real estate.

2. ARE WE ENTERING HYPERINFLATION?

QUESTION: What is happening? ANSWER: The Fed and the U.S. monetary authorities have triggered a hyperinflation which is currently manifesting itself in financial assets (primarily stock). It is now beginning to roll into real estate where prices in certain California real estate markets are now rising 25 to 35% per year. It is likely that at some point in the coming months, this hyperinflation in financial assets will roll into wages and prices. Indeed, industrial commodities were up almost 40% in price in 1999.

If the present hyperinflation in financial assets rolls into the real economy, our currency could be destroyed in a matter of days or weeks. This phenomenon is beginning to take hold all over the world. Hyperinflations are normally followed by financial/economic collapse and the rise of a dictatorship. The hyperinflation of the German Weimar Republic was followed by economic collapse and the rise of Adolf Hitler and the Nazi Third Reich.

3. WHAT IS A "CRACK-UP BOOM"?

Ludwig von Mises, history's greatest free market (Austrian) economist, wrote in his epic work The Theory of Money and Credit about a concept he called the "crack-up boom." As he wrote: "The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. The boom comes to an end as soon as additional quantities of fiduciary media are no longer thrown upon the loan market. But it could not last forever even if inflation and credit expansion were to go on endlessly. It would then encounter the barriers which prevent the boundless expansion of circulation credit. It would lead to the crack-up boom and the breakdown of the whole monetary system."

Dr. Frank Shostak, a leading Austrian economist and Chief Economist at Ord Minnett in Sidney, Australia, explained the concept of "crack-up boom." "According to von Mises, whenever people are observing ever expanding money supply they start to form expectations that the purchasing power of money will fall. Once they become convinced that the monetary pumping will never stop and consequently prices of goods and services will continue to rise, they will spend their money as fast as possible, i.e., their demand for money will fall.

"Ultimately this could reach an extreme, i.e., no one wants to hold money and there is a flight to real goods. This von Mises calls a crack-up boom. In other words, the increase in the money supply that generates expectations of a fall in money's purchasing power leads to the fall in the demand for money. Eventually, prices of real goods are rising to such high levels that people don't have enough money to buy them. Consequently it is not possible to conduct monetary transactions. The monetary system breaks down."

When von Mises wrote about credit excesses precipitating a flight to real goods (i.e., super or hyperinflation), he may not have envisioned today's stampede into stocks. Nevertheless, there are some strong similarities in his "crack-up boom" and in the stampede to convert money into stocks today fed and exacerbated by the Fed's promiscuous, non-stop monetary expansion. So we have the masses dumping cash to borrow more money to buy more stock. The same is beginning to happen in the real estate market and could begin to happen in commodities and other real goods including the much maligned, manipulated, and suppressed gold and silver markets.

The Fed may be losing control. Von Mises describes an accelerating situation which finally eventuates, wherein the monetary authorities must keep injecting more and more financial credit on an accelerating basis into the bubble to keep it going. When they slow it down, to stop the monetary inflating, the bubble collapses.

This is like a drug addict who must take ever increasing doses of drugs to maintain the same high. There is a principle of diminishing returns at work and if he levels off, slows down, or stops the drug intake, he will crash. The same thing applies in accelerating inflation, hyperinflation or a "crack-up boom."

For the first time since the 1970s, this writer now believes that there is the potential for high and rising inflation in the U.S. possibly leading to super or hyperinflation. A financial collapse will surely follow.

IN SUMMARY, Americans are still partying on the deck of the Titanic - driven by raw unadulterated greed, materialism, pride and arrogance believing that nothing can touch them, nothing can bring them down. They are very wise and indestructible in their own eyes. They just dodged the Y2K bullet (or so they believe) or was it an iceberg? But they don't see that there are other, even larger icebergs directly ahead. The Bible says that "pride comes before the fall." Americans are a very proud and prosperous people and this writer suspects they are headed for a major fall in the not-too-distant future.

III. YOUR PREPARATIONS WERE FOR MORE THAN Y2K

This writer (and a few close friends) have had the recurring feeling in recent months, even as we were preparing for and urging preparations for Y2K, that we might actually be preparing for something much, much larger than Y2K. A number of potentially very large crises, perhaps much larger than Y2K, were discussed briefly above. There are others.

Nothing but a crisis such as Y2K, with a deadline such as midnight 12/31/99 could have brought about the level of physical, financial and even spiritual preparedness which took place in America and elsewhere over the past year or so. No warnings of nuclear war, terrorist attacks, financial collapse, a State of Emergency, Martial Law or even a looming dictatorship in America would have brought about the level of self-sufficiency preparations which Y2K precipitated.

This writer believes that there is a hard-core movement of people in America who still follow the God of the Bible; who love righteousness and hate evil; who grieve over the present spiritual, moral, political decline in America; who are mavericks who still retain the ability to think and discern the true from the false and the good from the evil in our day; who love and understand freedom; who understand the times (and the dangers) we live in; and who have the mentality of survivors. It is primarily to this group who this writer writes these letters each month.

This writer suspects that this group is rather small (i.e., 250,000 people plus/minus) although it could be much larger or smaller. Only God knows. They are not distinguished by quantity but by quality. Many, or most of this group made serious self-sufficiency preparations for a Y2K crisis that at least initially turned out to be quite small.

Many have been laughed at, ridiculed, and mocked by relatives, friends, co-workers, etc. for having made "useless preparations in vain" after all, that money could have gone into the stock market. Many believed they were hearing the Lord in making those preparations (and this writer believes they probably were).

I strongly believe those preparations were not useless or in vain. They may have simply been for a different, perhaps far bigger crisis than they anticipated. If we have fire, auto, health, and life insurance, and don't really mind if we don't collect on it this year or next, why not disaster insurance?

[ED. NOTE: This writer and his investment company, International Collectors Associates, have been recommending precious metals for financial disaster insurance for 28 years and food reserves for other disasters for over ten years. This writer continues to believe that such disaster insurance is very important for the times that lie ahead.]

The media and some commentators have encouraged the people who made preparations to sell or give away (to the poor) their food reserves; to get rid of their generators or other preparations; and get on with the good life. In this writer's strong opinion, that would be a very serious mistake. Today the remnant is stronger, better prepared, more independent and more self-sufficient than at any time in modern history.

If war, terrorism, financial collapse (with loss of employment and income) or martial law should eventuate in the coming months, would you rather be independent and self-sufficient, or dependent on the government for your food and survival.

The good news is that Y2K helped the remnant to become self-sufficient. This writer still believes that Proverbs 27:12 applies: "The prudent see danger and take refuge, but the simple keep going and suffer for it."

FINAL THOUGHT

As the reader can tell, this writer still believes that America faces a great period of danger in the times which lie ahead. Great human, physical, financial, and spiritual discernment (a subject MIA will discuss in future issues) will be needed in the times of great deception which lie ahead. We still live in the day of the great lie, and it will get worse before it gets better.

There are three groups of people in America and the world today. The wicked, who hold many of the levers of power around the world today; the great masses who don't have a clue - who have little or no discernment, and who are driven by the winds and tides of the day; and the remnant, who have a stable foundation which is the God of the Bible. Psalm 10 seems to address all three of these groups and gives encouragement to the remnant in times of great trouble:

"Why, O Lord, do you stand far off? Why do you hide yourself in times of trouble? In his arrogance the wicked man hunts down the weak, who are caught in the schemes he devises. He boasts of the cravings of his heart; he blesses the greedy and reviles the Lord. In his pride the wicked does not seek Him; in all his thoughts there is no room for God.

"His ways are always prosperous; he is haughty and your laws are far from him; he sneers at all his enemies. He says to himself, `Nothing will shake me; I'll always be happy and never have trouble.' [ED. NOTE: Does this sound like America and most Americans today?] His mouth is full of curses and lies and threats; trouble and evil are under his tongue. He lies in wait near the villages; from ambush he murders the innocent, watching in secret for his victims.

"He lies in wait like a lion in cover; he lies in wait to catch the helpless; he catches the helpless and drags them off in his net. His victims are crushed, they collapse; they fall under his strength. He says to himself, `God has forgotten; he covers his face and never sees.'

"Arise, Lord! Lift up your hand, O God. Do not forget the helpless. Why does the wicked man revile God? Why does he say to himself, `He won't call me to account'? But you, O God, do see trouble and grief; you consider it to take it in hand. The victim commits himself to you; you are the helper of the fatherless. Break the arm of the wicked and evil man; call him to account for his wickedness that would not be found out.

"The Lord is King for ever and ever; the nations will perish from his land. You hear, O Lord, the desire of the afflicted; you encourage them, and you listen to their cry, defending the fatherless and the oppressed, in order that man, who is of the earth, may terrify no more." And that is the bottom line!